NSO (Non-Qualified Stock Option)

A stock option that anyone — employees, advisors, or contractors — can receive, but the difference between the strike price and the stock's value is taxed as regular income the moment you exercise.

Quick Answer

Do I owe taxes immediately when I exercise an NSO?

Yes — the spread between your strike price and the current fair market value is taxed as ordinary income the moment you exercise, typically with taxes withheld the same way as a paycheck.

Withholding happens at exercise, not at eventual sale
Only gains after exercise get capital gains treatment
Budget for the tax bill before you decide to exercise

The Lovie Advantage

Lovie calculates the exact taxable spread at exercise using your live 409A value, instead of a manual estimate.

See how this connects to Vesting Cliff. For the formal definition, see the IRS's Form 8949 instructions for reporting stock sales.

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